Due Diligence/Investigations

What is a Vendor Due Diligence?

Vendor due diligence turns traditional due diligence on its head. By applying rigorous analysis to assets destined for sale from the perspective of the buyer, BCG’s vendor due diligence consulting services help companies minimize risks, speed the sales process, and maximize value creation.

Analyses and findings related to financial and tax issues are presented to the seller and are summarised in a report that later is shared with potential buyers. This gives buyers a quick and good understanding of the business’ financial situation and development.

Third-Party Vendor Due Diligence

Due diligence is an investigation of a business or person prior to signing a contract, or an act with a certain standard of care. Detailed vendor background checks covering physical site verifications, due diligence on key promoters and their credentials, verification of key business documents and licenses, financial checks, public domain due diligence and reference.

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What Does Vendor Due Diligence Involve?

Vendor due diligence places obligations on both the third-party auditor and the target company and entails a range of crucial business considerations, including AML/CFT-specific factors. The processes and information that the vendor due diligence process requires include:

General target company information, such as geographic location, taxpayer number, operational capacity, incorporation documents, and legal status.
Beneficial ownership of the target company.
The target company’s historical financial information.
The target company’s cash flow, including expenditure on assets.
An evaluation of business risk and projected growth.
The target company’s debt, contingencies and other liabilities.
The target company’s operational compliance performance.

More specific AML-related due diligence might include:

Screening for risks specific to the company or the industry in which it operates, such as third-party relationships or the regulatory environment.
Screening for sanctions, watch lists and other restrictions placed against the company by governments and international authorities.
Screening for political connections that may expose the target company to a higher risk of money laundering.
Screening for negative news media against the target company.

Vendor Due Diligence Best Practice

Important factors that firms must consider when preparing for the vendor due diligence process, or engaging a third-party organization to perform an audit, include:

Data collection: The vendor due diligence process will require the collection and management of large amounts of information.
Monitoring : Certain due diligence screening processes, such as negative news media screening, require ongoing monitoring tools capable of capturing a range of data points.
Verification: Information generated and collected during vendor due diligence must be reliably checked for accuracy.